How Much Retirement Income Can an Annuity Actually Provide?

The four levers that set your payout

Two people with the same amount of money can receive very different monthly income. These are the reasons why:

• Your age when income starts. Later starts mean higher payouts because the expected payment period is shorter
• How long you defer. Many contracts credit a roll up to the income base each year you wait
• The payout option. Single life pays the most, joint life pays less but continues for a spouse, and period certain guarantees a minimum number of payments
• Contract type. Immediate, fixed deferred, and fixed indexed annuities with income riders each price income differently

The part you do not control

Payout rates move with prevailing interest rates and with each carrier's own pricing. That is why the same request quoted three months apart, or with three different carriers on the same day, can come back meaningfully different. Comparing multiple carriers at the moment you are ready to buy matters more than trying to time the market.

Sizing the guaranteed piece

A practical way to decide how much to put into an annuity is to work from your essential expenses rather than from a percentage of your savings.

• Add up essential monthly costs: housing, utilities, food, insurance, medical, transportation
• Subtract guaranteed income you already have, such as Social Security and any pension
• The remainder is your income gap, and that gap is the natural target for guaranteed income
• Keep separate liquid savings for emergencies, and leave growth assets invested for later years

Watch the fees and the surrender schedule

Income riders typically carry an annual charge, often a fraction of a percent to a bit over one percent of the income base. Surrender schedules commonly run five to ten years, with declining charges for withdrawals above the free amount. Neither is automatically bad, but both should be spelled out clearly before you sign, and they should fit money you do not expect to need in a hurry.

Questions to ask about any quote

Ask for the guaranteed numbers, not just the illustrated ones.

• What is the guaranteed monthly income if I start at my planned age?
• What changes if I wait one, three, or five more years?
• What does my spouse receive if I die first?
• What is the total annual cost of the contract and any riders?
• How much can I withdraw each year without a surrender charge?